Incredible Shrinking Budgets: Facing tightening defense budgets at home, European defense firms are looking to expand into service and support work and overseas markets.

Profits Take Off: Britain’s BAE Systems and France’s Thales both posted substantial profit increases in the first half of 2010 compared to the same period in 2009.

But Not for Everyone: Raytheon reported a steep 57% decline in second-quarter profit to $208 million from $489 million in last year’s second quarter, due mainly to the cancellation of a GBP750 million contract with the UK Border Agency. Raytheon release.

No We Didn’t: Rosoboronexport, the Russian state arms export agency, denies a report by the Russian business daily Vedomosti that it agreed to sell 2 S-300 PMU2 Favorit air defense battalions to Azerbaijan.

Train Wreck: An independent panel [PDF] warns that a US national security “train wreck in coming” because of aging equipment, inadequate training of US military personnel, and a declining US naval fleet. It’s headed by former Clinton Defense Secretary Perry and former Bush National Security Advisor Hadley, and was set up to review the Quadrennial Defense Review process.

Sideways: European lawmakers and defense experts are calling on the European Commission to investigate allegation of corruption in awarding of side deals for major weapons systems.

Dispensable Deterrent? The private Royal United Services Institute questions need for UK to maintain its nuclear-armed missile submarine force on patrol at all times, proposes alternative force structures. Full report [PDF]

Sikorsky’s X2 compound helicopter flies at 225 knots / 259 mph / 417 kmh, breaking the Lynx’s 216 knot speed record on its way to an envisioned 250 knot test later in 2010. A new Light Tactical Helicopter simulator will help potential customers envision what that kind of tilt-rotor class speed via simpler systems could mean.

Trust, but Verify: A US State Department report cites Russian compliance issue with international agreements restricting chemical and biological weapons. Full report [PDF]

Show Me the Money?: US DoD is unable to account for 95% of the $9.1 billion in Iraqi oil money that the US was going to use for rebuilding Iraq’s infrastructure, a report by the US Special Investigator for Iraq Reconstruction concludes.

Keeping the Edge: US should ensure Israel maintains its qualitative edge in armaments when it approves arms sales to Israel’s Arab neighbors – such as F-15s to Saudi Arabia – the Israeli defense minister tells the Washington Post during his US visit.

In July 2010, Odyssey International in Lancaster, PA received a $7 million firm-fixed-price contract for an addition to the existing Criminal Investigation Division lab at Fort Gillem, GA. Work will be performed in Fort Gillem, GA, with an estimated completed date of Jan 27/12. Bids were solicited on the World Wide Web, with 6 bids received by the U.S. Army Engineer District in Savannah, GA (W912HN-10-C-0044).

New construction will include additional space for the latent prints lab, trace evidence testing lab, serology/DNA lab, and other facilities to support their expanded future mission. Odyssey will also provide modernize energy monitoring and control systems connection and building information systems, including a mass notification system, fire protection system, and an intrusion detection system. Supporting facilities will include self-contained heating and cooling units; electrical, water, sewer, and gas services; along with other basics like paving, curb and gutter, storm drainage, accessibility for people with disabilities, site improvement and landscaping. “Anti-terrorist measures” will include laminated glass that doesn’t become a lethal hazard in explosions, a lesson from the Oklahoma City bombing.

Fort Gillem currently houses the 3rd MP Group (CID) Headquarters of the US Army Criminal Investigation Command, and will apparently continue to do so. Per the USA’s clever Base Realignment And Closure process, nearby Fort McPherson will close, and Fort Gillem will be downgraded to a military enclave near Atlanta by Sept 15/11.

Is that a Missile in Your Pocket?: A senior Iranian military commander claims that the country has the capability to mass produce ballistic missiles. To see what ballistic missiles Iran might have, check out this Council on Foreign Relations backgrounder.

Getting Kinky: According to an industry survey by AlixPartners, kinks in the global supply chain, such as the inability of OEMs to integrate Tier 1 and Tier 2 suppliers, will continue to hurt the global aerospace and defense markets.

If 2008 can be characterized as a year in which private equity buyers battled to acquire aircraft component manufacturers, then 2009 was a time of strategic acquirers fighting to secure defense technologies.

2009 was a relatively strong year for mergers and acquisitions. Defense technology saw a 6% increase in M&A activity in 2009 with a particularly strong second half of the year. This contrasts with M&A activity as a whole, which showed a 9% decline in the number of U.S. transactions across all sectors. M&A activity is likely to continue as the DoD, shaped by the 2010 QDR, shifts away from “big iron” and focuses on high-demand, low density assets such as unmanned aircraft, cyber security, and Command, Control, Communication, intelligence, Surveillance and Reconnaissance (C3ISR) technology. Defense contractors and government IT providers, mirroring these shifts in spending priorities, are actively looking to acquisitions to enhance their capabilities. Earnings for our defense IT company index rose 8% (EBITDA) during the year, and defense electronics company earnings rose 5%…

Recent wars have brought a new technology to the fore: precision artillery fire offers an alternative to air support that has a shorter reach, with very considerable throw-weight and repeatable fire, plus 100% persistence and availability in any weather. GMLRS is a highly accurate GPS-guided rocket that can be fired by ground forces 35 miles away and arrive on target, in under a minute, under any conditions, with a 200 pound unitary warhead that will take out a fortified house. That’s very useful. When integrated into a battlefield surveillance/strike setup like Task Force ODIN, their effectiveness is kicked up several more notches.

In July 2010, Lockheed Martin Missile and Fire Control in Dallas, TX received a $469.9 million firm-fixed-price and cost-plus-fixed-fee contract for Full Rate Production Lot V procurement for 4,770 total unitary rocket pods (with 6 227mm rockets each), and 530 reduced range rocket pods (RRPR, used for training). Work will be performed in Dallas, TX (15%), and Camden, AR (85%), with an estimated completion date of June 30/13. One bid was solicited with one bid received by US AMCOM Contracting Center at Redstone Arsenal, AL (W31P4Q-10-C-0270).

This Lot 5 buy covers hardware, support, spares, and “obsolescence support” for the USA, foreign partners, and Foreign Military Sales customers, as follows: